Endogenous Growth and Technological Progress with Innovation Driven by Social Interactions

26 Pages Posted: 30 Nov 2015

See all articles by Simone Marsiglio

Simone Marsiglio

University of Piemonte Orientale

Marco Tolotti

Ca Foscari University of Venice - Department of Management

Date Written: November 2015

Abstract

We analyze the implications of innovation and social interactions on economic growth in a stylized endogenous growth model with heterogenous research firms. A large number of research firms decide whether to innovate or not, by taking into account what competitors (i.e., other firms) do. This is due to the fact that their profits partly depend on an externality related to the share of firms which actively engage in research activities. Such a share of innovative firms also determines the evolution of technology in the macroeconomy, which ultimately drives economic growth. We show that when the externality effect is strong enough multiple BGP equilibria may exist. In such a framework, the economy may face a low growth trap suggesting that it may end up in a situation of slow long run growth; however, such an outcome may be fully solved by government intervention. We also show that whenever multiple BGP exist, the economy may cyclically fluctuate between the low and high BGP as a result of shocks affecting the individual behavior of research firms.

Keywords: Economic Growth, Innovation, Firms Interaction, Low Growth Trap, Fluctuations

JEL Classification: C60, D70, O40

Suggested Citation

Marsiglio, Simone and Tolotti, Marco, Endogenous Growth and Technological Progress with Innovation Driven by Social Interactions (November 2015). Department of Management, Università Ca' Foscari Venezia Working Paper No. 09/2015, Available at SSRN: https://ssrn.com/abstract=2696668 or http://dx.doi.org/10.2139/ssrn.2696668

Simone Marsiglio

University of Piemonte Orientale ( email )

Rectory, via Duomo
Novara, Novara 6-13100
Italy

Marco Tolotti (Contact Author)

Ca Foscari University of Venice - Department of Management ( email )

San Giobbe, Cannaregio 873
Venice, 30121
Italy

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